Nvidia (NASDAQ: NVDA) has been in red-hot form on the stock market in 2023. Shares of the semiconductor giant have more than tripled so far with eye-popping gains of 237%, which has taken its market cap well beyond the $1 trillion mark.
Nvidia currently has a market cap of $1.2 trillion, up from just over $350 billion at the beginning of the year. This massive surge is a result of the terrific acceleration in the company's growth recently thanks to its dominant position in the artificial intelligence (AI) market. Nvidia's chips are in hot demand thanks to their ability to train large language models, which have gained traction over the past year to deploy generative AI applications such as ChatGPT.
The good part is that the market for AI chips is currently in the early phases of growth. Market research firm Allied Market Research estimates that the global AI chip market could generate a roughly $384 billion in annual revenue in 2032, up from just $15 billion last year. This translates to a compound annual growth rate of 38% over the next decade.
Considering this massive end-market opportunity on offer and Nvidia's impressive share of more than 80% in the AI chip market, the stock's solid run seems here to stay. But can Nvidia stock rise enough to hit a market cap of $2 trillion by 2025? Let's find out.
Nvidia may surprise everyone by delivering faster growth
Analysts are anticipating Nvidia will finish the ongoing fiscal 2024 (ending in January 2024) with an 87% year-over-year spike in the top line to $50 billion. More importantly, Nvidia is anticipated to sustain that impressive growth over the next couple of fiscal years as well.
As the chart above tells us, Nvidia's revenue could increase 44% in fiscal 2025 and 21% in fiscal 2026 (which coincides with the majority of calendar 2025) to $96 billion. Multiplying Nvidia's fiscal 2026 revenue estimate of $96 billion with the company's forward price-to-sales ratio of 22, which is significantly lower than the trailing multiple of 37, points toward a market cap of just over $2.1 trillion.
So, there is a good chance that Nvidia could join the $2 trillion market cap club over the next couple of fiscal years. But don't be surprised to see that milestone arriving sooner. One thing that's evident from the chart above is that analysts have significantly raised their expectations for Nvidia this year. For instance, the company's fiscal 2025 revenue was expected to land at just under $40 billion a few months ago, but that estimate has now doubled.
That's not surprising considering the significantly large opportunity in AI chips and Nvidia's robust market share, as discussed earlier. Investors can expect the consensus estimates to move higher for the next couple of fiscal years given the potential ramp-up in the production of Nvidia's AI chips. Reports indicate that Nvidia may increase the output of its flagship H100 AI graphics processing unit (GPU) from 500,000 units this year to a range of 1.5 million units to 2 million units in 2024.
The H100 chip could cost between $30,000 and $70,000 depending on how powerful the configuration is. Even at the baseline, Nvidia could generate $15 billion in revenue from this chip this year. So, if Nvidia does manage to ramp up the output of the H100 next year to the forecasted range of 1.5 million units to 2 million units, its revenue from this processor could land between $45 billion and $60 billion.
This means that the H100 alone is capable of generating more revenue for Nvidia next year than the company's estimated top line for the current year. Moreover, Nvidia has just announced a new chip -- the H200 -- which is going to be more powerful than the H100 as it packs in a larger amount of the latest generation of high-bandwidth memory. The company plans to sell this chip alongside the H100, which means that it will have a stronger AI chip portfolio next year that could help it corner a bigger share of the market.
As a result, Nvidia's data center business could deliver $100 billion in revenue next year, which should allow it to outpace analysts' expectations by a huge margin and achieve the $2 trillion market cap even before 2025 arrives.
It's expensive, but investors should look at the bigger picture
Nvidia is currently trading at 37 times sales and 119 times trailing earnings. Those multiples are very expensive if we consider that the S&P 500 index has a sales multiple of 2.4 and trailing earnings multiple of 19. Nvidia's terrific growth, however, justifies its valuation as its sales and earnings have been growing at an eye-popping pace.
Additionally, Nvidia's forward multiples are significantly lower than the trailing multiples owing to the healthy growth the company is anticipated to deliver, as the chart above tells us. That's why investors looking for a growth stock to buy right now can consider Nvidia even after the eye-popping gains that it has delivered so far this year. It seems set to join the $2 trillion club soon, which would be a significant increase from current levels.
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